On May 24, 2010, the Texas Rangers filed for Chapter 11 bankruptcy protection. Currently, the team owes approximately $525 million to creditors. Team president Nolan Ryan, who also played 5 of his twenty seven major league seasons with the team, has assembled a group willing to pay over $500 million for the franchise. A July 16th auction date has tentatively been set for the sale of team. There are several other groups interested in the buying the team and Major League Baseball’s approval is required to complete the sale.
Bankruptcies of professional sports teams are rare. According to the Associated Press, the Rangers are only the third Major League Baseball team to file bankruptcy and will be only the second team to be sold through a bankruptcy auction. The Baltimore Orioles were sold at auction in 1993 and the Chicago Cubs were briefly in Chapter 11 in order to facilitate the sale of the team in 2009.
Chapter 11 is the form of bankruptcy typically used by large corporations and other businesses seeking to reorganize or restructure their debt. During the bankruptcy process, companies are allowed to continue standard, normal operations. In the Rangers case, they continue to play baseball.
Unlike Chapter 7 and Chapter 13, which are common for individuals, Chapter 11 is strictly used by partnerships or corporations who can be remain viable businesses in the long-term. Creditors will often receive more money back from the company if it can stay in business, as opposed to liquidating the assets and receiving far less than their initial investment in some cases.
One common thread between all three forms of bankruptcy is the “automatic stay.” This prohibits any collection activity against the company while in bankruptcy. Through Chapter 11 businesses often find a way to delay or reduce payments to creditors. This allows the company time to get its finances in order and develop a reorganization plan to repay debts.